Single Family Housing Starts At 2007 Levels

[David Goldsmith]

Housing Starts Increased in November 2020

Housing starts increased 1.2 percent in November as homebuilder confidence steps back from previous months.

therealdeal.com

Single-family housing starts now at 2007 bubble level​

November building permits up 6.2 percent from previous month

The number of housing units under construction grew for the third month in a row, as housing continues to drive the construction industry.
The last time single-family homes were built at this pace was 13 years ago, just before the housing bubble burst.

Housing starts last month increased 1.2 percent, seasonally adjusted, with 19,000 more units getting under way than in October, according to the Census Bureau’s monthly report on residential construction. In October housing starts grew by nearly 5 percent month-over-month, while in September they grew by 2 percent compared to August.

Housing starts in November were up 12.8 percent from the same period last year, when just 1.37 million units were under construction.
Residential construction accounted for 44 percent of total construction spending in October, the most recent period for which data is available. But homebuilders, which have been reporting unprecedented levels of optimism for the housing market, are beginning to rein in expectations. This month an index tracking homebuilder sentiment dropped for the first time since April.

But Joel Kan, head of industry forecasting at the Mortgage Bankers Association, noted that permits for single-family home construction rose to 2007 levels, which he said could indicate that the increase in homebuilding may continue into early 2021.
He also noted that housing starts of single-family homes had reached the highest level since 2007 for the second month in a row. The record was initially broken in October.

Building permits were up 6.2 percent to 1.63 million units, seasonally adjusted, compared to October. Permitting was up 8.5 percent year-over-year.
Despite increases in housing starts and permits, supply remains tight. Housing completions last month dropped 12 percent to 1.16 million units, seasonally adjusted, from 1.3 million units finished in October.

 

[David Goldsmith]

Housing Market Goes Crazy, Everyone Sees It Can’t Last, and then the First Dip Appears | Wolf Street

Housing Market Goes Crazy, Everyone Sees It Can’t Last, and then the First Dip Appears​

There is already a sudden and historic housing glut in San Francisco.​

That the housing market has gone crazy in many parts of the country – a phenomenon of the Pandemic stimulus extend-and-pretend forbearance free-money foreclosure-ban economy while households reported a loss of 9.0 million jobs in November, from February – and that this crazy housing market couldn’t last has become apparent to everyone months ago. In October, Redfin CEO Glenn Kelman said just that. It wasn’t “sustainable,” and “there’s no way it can last forever,” he said. So today we got another dose of crazy housing numbers, with the first dip since all this started in the spring.
The National Association of Realtors reported today that sales of existing homes – single-family houses, condos, and co-ops – dipped 2.5% in November from October to a seasonally adjusted annual rate (SAAR) of sales of 6.69 million. But given the explosion of sales in the prior months, sales were still up 25.8% from November last year (data via YCharts):

In terms of monthly sales, not seasonally adjusted and not annualized, 442,000 homes were sold in November, up 21.4% from November last year.

The median price of existing homes in November jumped 14.6% year-over-year to $310,800, with house prices up 15.1% and condo prices up 9.5%.
Over the past five years, the median home price has risen 42%, outrunning by a huge margin the wage gains of just about any category of wages, from the top 5% on down.
Since the median price is skewed by a shift in the mix, and with red-hot demand for higher-priced homes in this special economy of ours, the price increase could be partially a result of a larger portion of higher-priced homes in the sales mix.
And the seasonality of the median price has been upended. The median price normally peaks in June (the high points in the chart below), but not this year. In 2020, it peaked in October, with November being the first dip (data via YCharts):

“Given the COVID-19 pandemic, it’s amazing that the housing sector is outperforming expectations,” while “job recoveries have stalled in the past few months, and fast-rising coronavirus cases along with stricter lockdowns have weakened consumer confidence,” said the NAR report.
“Amazing” is the word. Echoing Redfin’s Kelman words that it “can’t last forever,” the NAR report said it will carry “well into the new year.” So five months? And then what? Those are rhetorical questions.
At the same time, many homeowners are struggling with their mortgages: 2.7 million mortgages are currently in forbearance, according to the Mortgage Bankers Association, and the delinquency rates of FHA-insured mortgages, which support the lower end of the market spiked to a record of over 17%, including mortgages that were delinquent before they entered into forbearance.
A lot of unsold inventory always gets pulled off the market before the holidays, to be put back on the market in the spring, which makes the “days on the market” look a lot better. Sharp seasonal declines in inventory are the rule this time of the year, but this November was nevertheless special.
Total inventory for sale at the end of November declined to 1.28 million homes, down 22% from November last year, for a supply at the current rate of sales of 2.3 months, an all-time low (data via YCharts):

But real estate is local, and inventory isn’t down everywhere. In some cities, inventory of unsold homes has surged. This includes San Francisco, where there used to be a housing shortage until there suddenly was a historic housing glut.
In San Francisco, inventory of homes for sale has exploded to a record over the summer, peaking seasonally at over 2,500 homes in early fall, the highest ever, and up 80% from a year ago, according to weekly data from Redfin.
As the seasonal decline in inventory kicked in over the past two months, the glut, when compared to the prior year, increased further. In the week through December 13, inventory at 1,805 homes for sale, was more than double the inventory during the same period last year:

Some of these people who put their homes on the market recently had bought a home elsewhere earlier, in outlying areas or in other states, along with the national buying panic. And they now own both homes.
Condos, which are often used as investment properties, are particularly in a glut in San Francisco. There is talk that many condos that were used for rentals or vacation rentals have hit the market, as both of those segments have taken a huge beating, amid surging vacancy rates in apartment towers and amid rents that have plunged by over 25% since June last year. And with the high carrying costs of condos, the condo math collapses under these conditions.

 

[Noah Rosenblatt]

there is a bubble brewing as the fed creates a massive search for yield. Look at stock moves of ZG, EXPI., RDFN lately. Amazing to see play out, but worried this doesnt end well. For Manhattan, I wouldnt be surprised to see a rotation back to dense urban hard hit markets once this housing bubble pops. I would guess sometime by mid 2021

 

[David Goldsmith]

The Most Splendid Housing Bubbles in America: December Update on House Price Inflation Gone Wild | Wolf Street

 

[David Goldsmith]

Pending Home Sales Index Declined in November 2020

U.S. pending home sales declined for the third consecutive month in November 2020, a sign that the hot housing market is leveling off.

therealdeal.com

Pending home sales decline for third straight month
Still, homebuyers are inking more deals than in 2019

A measure of pending home sales declined for the third consecutive month, as prices rise and inventory shrinks.
The National Association of Realtors’ pending home sales index declined 2.6 percent in November from the previous month. That represents a much steeper decline than October’s, when pending home sales ticked down 1.1 percent from the previous month. The monthly index tracks contract signings and closings for existing single-family homes, condos and co-ops. Closings usually occur within a month or two of the contract signing.

Despite the consecutive months of decline, contract signings remain elevated compared to the previous year. Contract signings were up 16.4 percent year over year in November — an all-time record.

Lawrence Yun, NAR’s chief economist, attributed the monthly decline in pending home sales to a shortage of available homes and rising prices. “It is important to keep in mind that the current sales and prices are far stronger than a year ago,” Yun said.
The median home price reached an all-time high in July, exceeding $300,000, as workers, untethered from their offices, hunted for digs with more space for remote working and virtual school. An S&P index which tracks home prices in major metropolitan areas showed prices were up 8.4 percent year over year in October — a growth rate not seen for more than six years.

With more buyers on the market, the supply of homes has also dwindled. Homes under $100,000 were the hardest to come by in November, with 38 percent fewer on the market compared to 2019. By comparison, the supply of homes priced at more than $1 million were down only 1.4 percent year over year.
In 2021, Yun predicted that mortgage rates will rise slightly, to 3 percent from the current 2.7 percent, due to government borrowing.

But with the vaccine and a congressional relief package on the way, Yun anticipates the new year will also bring a 10 percent rise in sales of existing homes and a 20 percent rise in new home sales.

 

[John Walkup]

"But with the vaccine and a congressional relief package on the way, Yun anticipates the new year will also bring a 10 percent rise in sales of existing homes and a 20 percent rise in new home sales." --> not sure how the $600 relief package is going to boost home sales.

 

[David Goldsmith]

U.S. Housing Supply Reaches Record Low

Housing supply is tighter than even as “pandemic buying” continues to snap up inventory. Active listings reached a nationwide low last month.

therealdeal.com

Active home listings hit record low
Buyers show no signs of stopping, yet supply remains paltry

It began with toilet paper, but it’s been homes for a while.
Pandemic buying has whittled the number of homes for sale in the U.S. down to an all-time low.

Active listings dropped below 700,000 in December, according to a monthly report from the National Association of Realtors.
That’s a decline of nearly 40 percent from last year, as demand was stoked by low borrowing costs and a Covid-influenced desire to relocate or get more living space. In November, 6.69 million homes were sold, snapping a five-month streak of gains.

Homes continued selling rapidly during the holiday season, closing about two weeks faster than a year ago, while fewer sellers entered the market during the holidays, according to the chief economist of Realtor.com, Danielle Hale.
“Looking forward, we could see new lows in the next couple of months as buyers remain relatively active,” Hale said in a statement, adding that any surge in Covid infections could discourage sellers from venturing into the market, further constraining supply.

Median listing prices climbed 13.4 percent over last year to $340,000. That is slightly less than a high of $350,000 set during the summer. Prices climbed most in Austin, Texas, up 20 percent from a year ago. The city has attracted businesses such as Tesla and Oracle since the onset of the pandemic. (An Austin-based, 3D-printed housing company hopes to bring prices down.)

While the pandemic has shifted how — and where — many people live, low housing supply in the U.S. is not a new phenomenon. “The shortage of homes for sale has been an ongoing issue for the last couple of years,” said Hale.

Appraisal expert Jonathan Miller said no single explanation accounts for low housing inventory, “something that has been baffling everybody for five or six years.”
With the pandemic, he said, a tough situation has become even worse. “One idea is that people are stuck in certain price tranches and are unable to move up,” causing a mismatch between buyers and sellers, he offered.

 

[John Walkup]

Appraisal expert Jonathan Miller said no single explanation accounts for low housing inventory, “something that has been baffling everybody for five or six years.” With the pandemic, he said, a tough situation has become even worse. “One idea is that people are stuck in certain price tranches and are unable to move up,” causing a mismatch between buyers and sellers, he offered.

--> When Jonathan Miller says it's baffling, why even bother offering a reason? ... but here goes: perhaps building homes is increasingly becoming a giant pain for everyone involved.

 

[David Goldsmith]

Investors Are Betting Big on Rental Homes

More single-family rental homes are under construction than ever before

www.architecturaldigest.com

Investors Are Betting Big on Rental Homes​

More single-family rental homes are under construction than ever before​

If one real estate trend defined 2020, it was the reevaluation of living in urban areas. First-time home buyers sought space and refuge in the suburbs, while vacation communities saw a surge of interest among those looking for new full-time homes.

With that increase in demand, however, has come a rise in prices that puts the renewed interest in homeownership out of reach for many, even at a time when interest rates are so low. Now, a building boom of single-family rental properties has arrived, with investors betting that those who are unable to pay for a suburban mortgage would be willing to settle for a lease.

According to recent reporting in the Wall Street Journal, a range of individuals and institutional investors are looking at build-to-rent projects and seeing dollar signs. As of June, data from John Burns Real Estate Consulting cited by the Journal estimated a total of 16.417 million single-family rental homes across the U.S. During the 12-month period ending on September 30, 2020, more than 50,000 such houses were built, a significant jump from a four-decade average of 31,000.

The bet on building homes specifically designed as rentals is the product of trends that began before—but were no doubt exacerbated by—the pandemic. During the 2010s, the share of homes that sold for under $200,000 plunged from well over 40% to less than 10% of total new home sales. That’s contributed to a situation where average earners in 55% of America’s counties now can’t afford homes there (up from 43% a year earlier), according to real estate analytics firm Attom Data Solutions.

Simultaneously, the build-to-rent trend has its ties to the fallout from the 2007–2008 housing crisis. Once the large landlords who consolidated their holdings by snatching up foreclosures ran out of distressed assets to acquire, the next logical step was to start building up the housing supply themselves. Add in lender hesitance to finance homeownership for the lower middle class, and you have the recipe for companies like American Homes 4 Rent to add more than 2,500 newly built rental homes to its portfolio in recent times.

Increasingly, these build-to-rent developments have started to resemble sprawled-out apartment complexes, with freestanding single-family properties clustered together in planned subdivisions and cul-de-sacs. In addition to giving investors more control over the look and feel of their properties, the new housing stock is often appealing to renters looking for a modern home.

These snazzy properties clearly have their advantages over other options on the rental market. “Imagine if consumers could only lease old cars, not new cars,” John Burns Real Estate Consultings’ Rick Palacios Jr. told the Journal. “That’s how single-family rentals have been.”

With some experts predicting that the percentage of newly built single-family homes sold directly to investors could hit 5% in the years ahead, it could be that leaving city high-rises behind will become less likely to involve a mortgage. How exactly this might reshuffle the housing market—or what happens if demand cools off—remains to be seen.

 

[David Goldsmith]

A $60 Billion Housing Grab by Wall Street (Published 2020)

Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.

www.nytimes.com

A $60 Billion Housing Grab by Wall Street​

Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.

 

[David Goldsmith]

Redfin Report Shows Institutional Buyers Flood Housing Market

A report by Redfin shows investors dropped a record $77 billion on homes in the past six months, adding to the housing crunch.

therealdeal.com

Institutional buyers are flooding single-family market​

Dropped record $77B on homes in past 6 months, according to Redfin​

Institutional buyers are in spending mode.
Investors dropped a record $77 billion on homes in the past six months, according to Business Insider, citing a Redfin report. That compares to the $55 billion spent on homes in the second and third quarters of 2020, when buying dropped as Covid cases surged and cities imposed restrictions.
Overall, the number of homes acquired by investors jumped 2.7% in the first quarter compared to the same period last year.

The massive purchases have added to the nationwide housing crunch amid what has been a red-hot market.
Investors are most focused on single-family homes, which made up the biggest share of acquisitions and first-quarter growth, year over year. Nearly 39,000 of the 55,000 homes investors bought in Q1 were single-family properties, up 4.8% from last year.

Among the investors cited in the Redfin report were Invitation Homes and American Homes 4 Rent, both single-family-rental behemoths. Also on the list, iBuyer Opendoor snapped up 55,000 homes in Q1, Business Insider reported. Others like Offerpad and Zillow, have taken to gobbling up houses, sight unseen.

Small real estate companies and individuals looking to flip properties accounted for a portion of investors in cities like Miami, Atlanta, Las Vegas, Phoenix, and Charlotte, North Carolina.
Redfin chief economist Daryl Fairweather said he expects the buying momentum to accelerate.
“Investors took a huge pause during the pandemic, and they still haven’t made up for all the homes they didn’t purchase during that period,” she told the publication.

With a larger institutional presence, an already tight housing market could grow tighter. Single-family-rental companies can also overshadow smaller buyers with all cash deals and a more aggressive approach to closing.

 

[Noah Rosenblatt]

Ugh, signs of a top everywhere. This is the part where 6 months later we look back at times like this. Hope Im wrong and housing sector smoothly navigates the purge of excess for this cycle

 

[David Goldsmith]

Robert Shiller: 'Wild West' mentality is gripping housing, stocks and crypto

Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market’s hottest trades.

www-cnbc-com.cdn.ampproject.org

Robert Shiller: 'Wild west' mentality is gripping housing, stocks and crypto​

Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market's hottest trades.
He's notably concerned about housing, stocks and cryptocurrencies, where he sees a "wild west" mentality among investors.

"I haven't done that in print. I've been saying that," the Yale University professor told CNBC's "Trading Nation" on Friday.
Even though the record run in stocks and cryptos have been taking a break over the past couple of weeks, Shiller is worried. He's particularly uneasy about the latest housing boom.
"In real terms, the home prices have never been so high. My data goes back over 100 years, so this is something," said Shiller, co-founder of the S&P CoreLogic Case-Shiller home price index. "I don't think that the whole thing is explained by central bank policy. There is something about the sociology of markets that's happening."
Over the past three decades, Shiller finds home prices seem to be driving housing starts. He's seeing the pattern emerge again, and highlights it in a special chart.

"We have a lot of upward momentum now. So, waiting a year probably won't bring house prices down," Shiller said.

According to Shiller, current home price action is also reminiscent of 2003, two years before the slide began. He notes the dip happened gradually and ultimately crashed around the 2008 financial crisis.
"If you go out three or five years, I could imagine they'd [prices] be substantially lower than they are now, and maybe that's a good thing," he added. "Not from the standpoint of a homeowner, but it's from the standpoint of a prospective homeowner. It's a good thing. If we have more houses, we're better off."
Shiller, an expert in how our emotions drive financial decisions and author of "Narrative Economics: How Stories Go Viral and Drive Major Economic Events," also sees mass psychology playing a big role in the epic stock market rebound.
Since the March 2020 low, the S&P 500 and Dow are up almost 90% while the tech-heavy Nasdaq is up just over 100%.
Shiller, who viewed stocks as highly priced going into the year, warns inflation fears could ultimately push long-term assets lower.

Crypto's 'ultimate source of value is so ambiguous'​

The cryptocurrency market is putting Shiller on alert, too.
"That's a very psychological market. It's impressive technology," Shiller said. "But the ultimate source of value is so ambiguous that it has a lot to do with our narratives rather than reality."
Even Shiller has been tempted.
"I was thinking of buying them to experience the effect. A lot of people do that actually," he said. "I never bought bitcoin. Maybe I should be active in that market."
Based on bitcoin's latest wild swings, some of the enthusiasm may be evaporating. As of Friday's close, it's down more than 30% over the past two weeks.

 

[Noah Rosenblatt]

Robert Shiller: 'Wild West' mentality is gripping housing, stocks and crypto

Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market’s hottest trades.

www-cnbc-com.cdn.ampproject.org

Robert Shiller: 'Wild west' mentality is gripping housing, stocks and crypto​

Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market's hottest trades.
He's notably concerned about housing, stocks and cryptocurrencies, where he sees a "wild west" mentality among investors.

"I haven't done that in print. I've been saying that," the Yale University professor told CNBC's "Trading Nation" on Friday.
Even though the record run in stocks and cryptos have been taking a break over the past couple of weeks, Shiller is worried. He's particularly uneasy about the latest housing boom.
"In real terms, the home prices have never been so high. My data goes back over 100 years, so this is something," said Shiller, co-founder of the S&P CoreLogic Case-Shiller home price index. "I don't think that the whole thing is explained by central bank policy. There is something about the sociology of markets that's happening."
Over the past three decades, Shiller finds home prices seem to be driving housing starts. He's seeing the pattern emerge again, and highlights it in a special chart.

"We have a lot of upward momentum now. So, waiting a year probably won't bring house prices down," Shiller said.

According to Shiller, current home price action is also reminiscent of 2003, two years before the slide began. He notes the dip happened gradually and ultimately crashed around the 2008 financial crisis.
"If you go out three or five years, I could imagine they'd [prices] be substantially lower than they are now, and maybe that's a good thing," he added. "Not from the standpoint of a homeowner, but it's from the standpoint of a prospective homeowner. It's a good thing. If we have more houses, we're better off."
Shiller, an expert in how our emotions drive financial decisions and author of "Narrative Economics: How Stories Go Viral and Drive Major Economic Events," also sees mass psychology playing a big role in the epic stock market rebound.
Since the March 2020 low, the S&P 500 and Dow are up almost 90% while the tech-heavy Nasdaq is up just over 100%.
Shiller, who viewed stocks as highly priced going into the year, warns inflation fears could ultimately push long-term assets lower.

Crypto's 'ultimate source of value is so ambiguous'​

The cryptocurrency market is putting Shiller on alert, too.
"That's a very psychological market. It's impressive technology," Shiller said. "But the ultimate source of value is so ambiguous that it has a lot to do with our narratives rather than reality."
Even Shiller has been tempted.
"I was thinking of buying them to experience the effect. A lot of people do that actually," he said. "I never bought bitcoin. Maybe I should be active in that market."
Based on bitcoin's latest wild swings, some of the enthusiasm may be evaporating. As of Friday's close, it's down more than 30% over the past two weeks.

Lumber prices doing volatile things -

 

[David Goldsmith]

Copper and other building materials as well. It's getting very expensive to build anything.

 

[David Goldsmith]

Housing starts by decade:
1960s: 9.3 million starts
1970s: 11.4 million starts
1980s: 9.9 million starts
1990s: 11.0 million starts
2000s: 12.3 million starts
2010s: 6.8 million starts

The fall from the penultimate decade in this list has largely been credited with current supply shortage and price gains. But at the current rate the next will produce 17.7 million - far more than prior decades.

National Association of Home Builders on LinkedIn: #realestate #economy #homebuilding | 20 comments

Total U.S. housing starts increased 6.8% in February to an annual rate of 1.77 million, 22.3% higher than a year ago. Single-family home starts grew 5.7% last… | 20 comments on LinkedIn

www.linkedin.com

 

[David Goldsmith]

Housing Starts Jump 22% Year-Over-Year

Despite the rise in housing starts, another report showed lagging builder confidence as costs soar and an inventory shortage persists.

therealdeal.com

Housing starts jump 22% year-over-year as shortage persists

Despite the rise, completions fell and builder confidence is lagging​

Home builders are hard at work attempting to bridge the broad gap between supply and demand in the nation’s housing market.
Privately-owned housing starts rose 22.3 percent year-over-year in February, according to a monthly report from the U.S. Census Bureau. The seasonally adjusted annual rate of nearly 1.77 million housing starts was up 6.8 percent from January’s revised estimate. Single-family housing starts jumped 5.7 percent from the previous month.

More homes appear to be in the pipeline, too. According to the Census Bureau, building permits for privately-owned housing units rose 7.7 percent year-over-year in February, though they dropped 1.9 percent from January.
While construction is commencing on more new homes, builders are having a difficult time finishing those already in progress. Privately-owned housing completions hit a seasonally adjusted annual rate of 1.31 million in February, the report showed, up 5.9 percent from January, but down 2.8 percent year-over-year.

The housing market is in desperate need of more supply as low inventory pushes up home prices. For-sale inventory dropped 31.6 percent in the fourth quarter to a record low of 753,102 units nationwide in December. For the full year, inventory dropped 26.6 percent in 2021, according to Zillow.
Moreover, homebuilder confidence is waning. The National Association of Home Builders/Wells Fargo Housing Market Index, which tracks builder’s confidence in single-family home sales, dropped for the third straight month in March, down two points from February and below 80 points for the first time since September. Supply constraints, rising construction costs and shifting federal policy are among the factors cited for builders’ dimming outlook.

“Builders are reporting growing concerns that increasing construction costs (up 20 percent over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market,” said National Association of Home Builders chief economist Robert Dietz in a report this week.
In the meantime, home prices continue to soar. The median home sale price hit $376,200 in February, nearing an all-time high, according to Redfin.

 

[David Goldsmith]

Inventory of New Houses Piles Up to Highest since 2008. Sales & Prices Drop. Stocks of Homebuilders Swoon | Wolf Street

Inventory of New Houses Piles Up to Highest since 2008. Sales & Prices Drop. Stocks of Homebuilders Swoon

Buyers hobbled by spike in mortgage rates and sky-high prices. Builders hobbled by shortages and worst spike in costs ever recorded.​

The inventory of new single-family houses for sale rose to 407,000 houses in February (seasonally adjusted), the largest unsold inventory since August 2008, up by 40% from a year ago. This represents 6.3 months of supply at the current rate of sales, according to data from the Census Bureau today.

A problematic mix. Homebuilders are facing historic spikes in costs, and they’re hobbled by shortages of materials, supplies, and labor that have been stalling construction projects and impeded the completion of projects. Potential buyers are hobbled by surging mortgage rates and prices that last year spiked into the sky. This is turning in to a problematic mix.

Sales of new houses in February fell to a seasonally adjusted annual rate of 772,000 houses, down 6% year-over-year. Sales remain far below the boom years of 2002-2006.

Sales of new houses are registered when the sales contracts are signed, not when deals close, unlike sales of existing homes, which are tracked when sales actually close. Trends of new-house sales tend to be an early but volatile indicator of broader home sales.

The median price of single-family houses sold, having apparently hit some kind of ceiling last year, fell to $400,600 in February, down about 7% from the peak in November 2021 ($430,300), having now bounced up and down in the same range since July 2021 ($406,000).

This whittled down the year-over-year gain to 10.7%, from the year-over-year gains of 20% to 24% that had raged last year through November.

Note the ridiculous price spike from June 2020 through July 2021, and how prices might have bumped into some sort of ceiling late last year:

Construction costs of single-family houses – excluding the cost of land and other non-construction costs – spiked by 17% year-over-year, the third month in a row of 17% spikes, according to separate data from the Census Bureau today. These were the worst cost spikes in the data that go back to 1964, amid all kinds of shortages and delays, and with everyone being able to pass on higher prices.

This chart shows the year-over-year increases in the construction cost index of new single-family houses:

The chart below shows the actual index, with index values. Since June 2020, the index has spiked by 24%. Note what happened during the Housing Bust: Between April 2007 and February 2012, the construction cost index fell by 11%:

Homebuilder stocks swooned upon the news. Their stock price moves by early afternoon today:

• R. Horton [DHI]: -4.3%
• Lennar [LEN]: -3.6%
• PulteGroup [PHM]: -3.2%
• NVR [NVR]: -1.5%
• Taylor Morrison [TMHC]: -4.7%
• Meritage Homes [MTH]: -4.4%
• KB Home [KBH]: -4.5%
• Century Communities [CCS]: -4.7%
• LGI Homes [LGIH]: -7.8%

But sentiment about the homebuilders has been souring since December last year. The WOLF STREET Homebuilders Index, based on the combined market cap of the above nine homebuilders, fell 4% as of early afternoon today, is down 26% from the 52-week high last December, and is back where it had first been in August 2020:

 

[David Goldsmith]

Home Sales, Building to Slow Amid Rate Surge: Fannie Mae

Fannie Mae economists predicted a “large deceleration” in the growth of home prices next year ahead of a slow in construction.

therealdeal.com

Home sales, building to slow: Fannie Mae​

Economists predict “large deceleration” in home price growth next year​

Home prices have reached historic highs in recent months, but low inventory and rising mortgage rates have some economists warning of a slowdown in both sales and homebuilding.
A “meaningful slowdown” could be headed for home sales in the second and third quarters, according to an outlook from Fannie Mae reported by Inman. The economists forecasted 6.1 million total home sales this year, a reduction from previous estimates that would represent an 11.1 percent decline from 2021.

The economists expect even fewer sales in 2023, 5.4 million, a further 11.6 percent decline. They believe once sales slow, construction will follow.
Rising mortgage rates are one of the factors to blame for the forecasted slowdown as they hover around their highest levels since the start of the pandemic.
“Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity, which we reflect in our forecast,” Fannie Mae chief economist Doug Duncan said in a statement.

In addition to higher mortgage rates making buying a home less affordable, homeowners may be less inclined to sell their homes and buy a new one because they are locked into a more favorable rate.
In good news for hopeful buyers, the economists forecasted the appreciation of home prices to slow down. Price appreciation is expected to hit single digits next year and drop to 3.2 percent by 2023’s fourth quarter, though the deceleration varies by region.

Fannie Mae economists don’t foresee another crash like 2008, though.
“To be clear, even if home prices were to decline in coming years, we are not anticipating a reoccurrence of the housing market or economic turmoil seen during the 2008 financial crisis, as conditions are considerably sounder today,” the economists said.
Fannie Mae economists also predicted that mortgage rates are hovering around a peak. They anticipated rates will hover around 5.1 percent for the near-term future, but will begin to drop slowly in about a year. The forecast projected mortgage originations to drop 40 percent this year and 7.4 percent next year; refinancings are forecasted to fall 69 percent in 2022 and another 38 percent in 2023.

 

[David Goldsmith]

CalculatedRisk Real Estate News
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April New Home Sales Decline Sharply, almost 6 Months of Inventory Under Construction​ New Home Sales Decrease to 591,000 Annual Rate in April​ CalculatedRisk by Bill McBride May 24 The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 591 thousand. The previous three months were revised down. Sales of new single‐family houses in April 2022 were at a seasonally adjusted annual rate of 591,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.6 percent below the revised March rate of 709,000 and is 26.9 percent below the April 2021 estimate of 809,000. emphasis added The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. ​ New home sales are now below pre-pandemic levels. The second graph shows New Home Months of Supply. ​ The months of supply increased in April to 9.0 months from 6.9 months in March. The all-time record high was 12.1 months of supply in January 2009. The all-time record low was 3.5 months, most recently in October 2020. This is well above the top of the normal range (about 4 to 6 months of supply is normal). The seasonally‐adjusted estimate of new houses for sale at the end of April was 444,000. This represents a supply of 9.0 months at the current sales rate. On inventory, according to the Census Bureau: "A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted." Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. ​ The inventory of completed homes for sale - at 38 thousand - is up from the record low of 32 thousand in 2021 and early 2022. This is about half the normal level of completed homes for sale. The inventory of homes under construction at 288 thousand is the highest since 2006. The inventory of homes not started is at a record 118 thousand. The fourth graph shows sales NSA (monthly sales, not seasonally adjusted annual rate). ​ In April 2022 (red column), 53 thousand new homes were sold (NSA). Last year, 74 thousand homes were sold in April. The all-time high for April was 116 thousand in 2005, and the all time low for April was 30 thousand in 2011. The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in April 2022 were down 26.9% from April 2021. ​ Almost 6 Months of Inventory Under Construction​ The next graph shows the months of supply by stage of construction. “Months of supply” is inventory at each stage, divided by the sales rate. ​ The inventory of completed homes for sale was at 38 thousand in April, up from the record low of 32 thousand in several months in 2021 and early 2022. That is just over 0.8 months of completed supply (red line). This is lower than the normal level. The inventory of new homes under construction is at 5.9 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints. This is close to the record set in 1980. And 118 thousand homes have not been started - about 2.4 months of supply (grey line) - almost double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices and demand. New Home Prices in January​ And on prices, from the Census Bureau: The median sales price of new houses sold in April 2022 was $450,600. The average sales price was $570,300. The following graph shows the median and average new home prices. Overall home prices are up sharply year-over-year. ​ During the housing bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales. When housing started to recovery - with limited finished lots in recovering areas - builders moved to higher price points to maximize profits. Then the average and median house prices mostly moved sideways since 2017 due to home builders offering more lower priced homes. Prices really picked up during the pandemic. The average price in April 2022 was $570,300 up 31% year-over-year. The median price was $450,600, up 20% year-over-year. The last graph shows the percent of new homes sold by price. ​ Only 9% of new homes sold were under $300K in April 2022. This is down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher). There has been a sharp increase in the percent of homes over $500K since the beginning of the pandemic. In early 2020, about 17% of new homes sold were over $500K; in April 2022, 43% were over $500K. Conclusion​ It appears sales are being impacted significantly by higher mortgage rates (as expected). The good news - for the home builders - is there are very few completed homes for sale (unlike during the bubble). However, there are a large number of homes under construction (almost 6 months of inventory under construction at the April sales rate). ​